Is the Dollar Living on Borrowed Time, or Not?

Yogi Berra, one of the keenest observers of the human condition, once remarked, "It is tough to make predictions, especially about the future."  And, so it is.

Between the middle of last December and the middle of March, the Dollar Index rallied 14.7%. It then fell 6.2%.  A 50% retracement would bring it to 94.00, which had generally provided support in the second half of February.  It was from that that the Dollar Index staged a new leg up that carried it to 100.40 over the next few weeks.

Evidence that the Dollar's Bull Case May Be Turning Over

The US dollar finished the week on seemingly fragile footing. The question investors are asking is if the steady drum beat of disappointing US economic data turns the dollar's bull case on its head.  The Europe and Japanese side of the divergence have not changed, but the US side has. 

Gold is on the Move Between Nations, but with Little Price Reaction

The price of gold is essentially unchanged from where it finished last year.  There have been several interesting developments.  Of particular note, China, India and Russia were significant buyers last month. 

It appears that the UK exported gold to Switzerland, where it was refined and then shipped to China and India.  Russia continues to accumulate gold even as its hard currency reserves fall.

An Upbeat ECB Survey, the Dollar Consolidates, and the Japanese are Buying a lot of Treasuries

The US dollar has stabilized from a sell-off that took it to JPY118.50 and lifted the euro to almost $1.0750.  Disappointing US data has squeezed out some late longs and unwound the rise the implied yields of the December Fed funds and Eurodollar futures contracts.  The gap between the market pricing of a December lift-off contrasts with the surveys that show a large majority in the June-Sept period.

Time to Review the Dollar Index

The attention of financial markets often gets fixated on an index of measure and not on the effectiveness, purpose or the objective of the measure. The dollar index, in its current form, practically from 1973, is a classic case on it.

The Dollar Showed Somewhat Surprising Strength Last Week

The US dollar turned in an unexpectedly strong performance last week. It appreciated against all the major currencies, but the Australian dollar, and most of the emerging market currencies. Fundamental considerations after the disappointing March US employment report coupled with technical indicators favored a softer dollar. Instead, the dollar had one of its best weeks of the year.